Judge Shuts Charity for Lack of Tax Exemption : Courts: Glendale-based American Veterans Committee has been accused of raising funds illegally and giving only 5% to service groups.
A Superior Court judge shut down the Glendale-based American Veterans Committee indefinitely after the state attorney general’s office charged that the committee engaged in illegal fund raising for more than a year.
Until recently, the committee was raising thousands of dollars each week, telling donors their gifts to veterans, blind children and battered women were “100% tax-deductible,” state authorities said. But the organization, which has been soliciting funds mainly from a Bellflower phone room, was denied a federal tax exemption in April, 1989, and lost its state tax exemption last May, court documents say.
After reviewing documents filed by the state and the committee, Los Angeles Superior Court Judge William Huss issued a preliminary injunction Friday, shutting down the organization indefinitely.
State officials said the committee, administered by a Glendale businessman, also has failed to file annual financial reports with the Attorney General’s Registry of Charitable Trusts for 1987 through 1989, as required by law.
The committee has “engaged in a continuing course of misconduct, in violation of the law,” the attorney general’s staff argued in a civil complaint. “It is anticipated that such misconduct will continue unless enjoined.”
In papers filed with the state, the committee has said that less than 5% of the money it raises goes to charity, with the remainder going to the fund-raisers and their expenses.
The ruling Friday followed a temporary restraining order Huss issued Feb. 7, halting the committee’s fund raising for 15 days while legal arguments were prepared.
“The key issue here is the lack of the proper accounting that the state requires,” the judge said Friday. “That hasn’t been done.”
Turning to Gerald McNally Jr., attorney for the Glendale group, Huss added: “If human beings don’t comply until they’re hit over the head, then the state has to come in and hit them over the head. . . . You’re abusing the system, and your client is, too.”
At the hearing, Huss was told that the group is the target of a second lawsuit filed last August by a Washington-based veterans organization, also called American Veterans Committee. In its suit, the Washington group, formed in 1943, alleged that the Glendale organization, founded in 1986, “wrongfully and unlawfully” adopted its name “for the purposes of deceiving and misleading the public into donating money.”
Huss agreed to combine the state’s case with the suit filed by the Washington committee.
He ordered the two veterans groups and the attorney general’s staff to attend a voluntary settlement conference April 4. If an agreement is not reached, a trial will be held on whether the court should issue a permanent injunction against the Glendale group.
“I believe that resolving it informally would be a better way,” Huss said.
After the hearing, Frank E. Burford, president of the Glendale organization, said the judge’s ruling would have its most serious effect on his fund-raising crew of about 30.
“The only people he’s hitting over the head now are a lot of poor people who don’t have a job,” he said. “For some people, this is the only work they can do.”
Yet, he added: “I think it’s going to be resolved. They’re going to see that everything we’ve sent them is in order. We are not doing anything illegal.”
Burford said his group has been sending financial statements to state officials since last April.
“They have just wanted detail after detail after detail,” he said. “We have the best records in the world for this organization. We have sent them volumes.”
But Deputy Atty. Gen. William S. Abbey disagreed.
“The stuff he has submitted is totally inadequate,” he said. “There are 50,000 other charities operating in California that manage to meet the statutory reporting requirements. So why can’t Burford?”
The injunction prohibits further fund raising or expenditures by Glendale’s American Veterans Committee and its affiliates: Blind Children’s Society, Battered Women’s Society, Child Abuse Network and United Missions.
Burford has said his group seeks donations, then gives money to programs that serve veterans, battered women and others.
Gregory S. Howard, a state charitable trusts auditor, said Burford’s most recent report stated that his organization raised $434,027 during the fiscal year that ended Aug. 31, 1989. From this sum, the group gave $20,814--less than 5% of its revenue--to service programs. Most of the remaining funds covered fund-raising costs, such as solicitors’ fees and office rent.
The percentage donated to charity is far below the average for Los Angeles fund-raisers and the voluntary standards set by national watchdog groups. According to figures compiled by the Los Angeles Social Service Department, most charities spend 20% or less to cover their fund-raising expenses. But the U.S. Supreme Court has ruled that states and cities cannot mandate how much a fund-raiser must donate to a charity.
Over the past year, however, city and state regulators have challenged the Glendale group’s bookkeeping and its lack of tax exemptions.
In an April 16 letter included in the court records, state auditor Howard told Burford that critical sections were missing from his financial reports. “When completing these pages, you should consider seeking professional accounting assistance,” Howard wrote.
Burford operates an accounting business in Glendale but is not a certified public accountant. He is licensed to complete federal tax forms.
In the court case, the attorney general’s office presented evidence that the Glendale veterans committee filed an incomplete application with the Internal Revenue Service and was denied a federal tax exemption in 1989. In addition, California officials rescinded the group’s state tax exemption last May, again because it did not provide enough information on its finances.
Residents who were suspicious of the group’s fund-raising tactics have also contacted authorities.
Los Angeles City Fire Department Capt. Norman M. Pate of Van Nuys said his wife received a call Feb. 7 from a solicitor who said the Blind Children’s Society urgently needed cash. Margaret Pate was told to make out her $35 check to “B.C.S.” and leave it in her mailbox for a messenger to pick up.
The next day, the check was gone, and a receipt was left behind, saying the gift was tax-deductible.
The Pates became suspicious when a friend who works at a school for the blind said she had never heard of the organization. They stopped payment on the check and wrote to the Los Angeles Social Service Department, which last year denied American Veterans Committee and its affiliates a permit to seek donations in the city.
The Pates’ letter was submitted to Judge Huss, along with a written complaint from the Blind Children’s Center, which aids visually impaired children at its Los Angeles facility. In 1987, the center returned a $500 donation from the Glendale group because of concerns about its fund-raising practices, said Gina Erlandson, assistant development director.
Last June, the center received several calls from people who had been solicited by the Blind Children’s Society. They asked if it was affiliated.
“The Blind Children’s Center feels victimized by the use of the name Blind Children’s Society,” Julie K. Wharton, then president of the center, wrote to a city investigator. “It creates confusion in the public sector.”
Erlandson said her center was following the current court case. “We’re very pleased that something is being done,” she said, “because it’s not fair to the community or the Blind Children’s Center to divert funds that could be going directly to provide service at this center or other worthwhile organizations.”